Econ 102 Final Review

Differences in the amounts and quality of education and training

combine with differences in mental, physical, and aesthetic talents to produce income inequality.

If a 5 percent decrease in the price of Good A results in an increase of 8 percent in the quantity demanded of Good B, then it can be concluded that Goods A and B are

complementary goods.

Answer the question based on the payoff matrix for a duopoly in which the numbers indicate the profit in millions of dollars for each firm. If Firm B adopts the high-price strategy, then Firm A would adopt the

low-price strategy and earn $325.

When a tariff on a product is removed, this policy action

lowers the price for consumers.

If one worker can pick $10 worth of grapes and two workers together can pick $24 worth of grapes, the

marginal revenue product of the first worker is $10.

Refer to the graphs which show demand curves reflecting the prices Alvin and Elmer are willing to pay for a public good, rather than do without it. The collective willingness to pay for the first unit of this public good is

$18

Refer to the data in the accompanying table. If the firm's minimum average variable cost is $11, the firm's profit-maximizing level of output would be

5

The minimum acceptable price for a product that producer Sam is willing to receive is 10. The price he could get for the product in the market is 15. How much is Sam's producer surplus?

5

The supply of product X is elastic if the price of X rises by

5 percent and quantity supplied rises by 7 percent. Correct

A major characteristic of oligopolistic firms is that

interdependence exists between it and the other firms in the industry.

Assume the XYZ Corporation is producing 40 units of output. It is selling this output in a purely competitive market at $15 per unit. Its total fixed costs are $200 and its average variable cost is $12 at 40 units of output. This corporation

is realizing an economic Loss of $-80.

An industry comprising 5 firms, each with about 20 percent of the total market for a differentiated product, is an example of

oligopoly.

Creative destruction is

the process by which new firms and new products replace existing dominant firms and products.

A firm in an oligopoly is similar to a monopoly in that

both firms could have significant market power and control over price.

Jennifer buys a piece of costume jewelry for $33, for which she was willing to pay $42. The minimum acceptable price to the seller, Nathan, was $30. Jennifer experiences a

consumer surplus of $9, and Nathan experiences a producer surplus of $3.

Farmer Jones is producing wheat and must accept the market price of $8.80 per bushel. At this time, her average total costs and her marginal costs both equal $10.50 per bushel. Her minimum average variable costs are $6.50 per bushel. In order to maximize profits or minimize losses in the short run, farmer Jones should

continue producing, but reduce output.

A pure monopolist is selling twenty units at a price of $100. If the marginal revenue of the 21st unit is $16, then the

price of the 21st unit is $96

Augi's Art Shack sells art supplies in a perfectly competitive market. The firm is currently realizing economic profits of $14,000 in the short run. In the long run we would expect Augi's to

realize economic profits of $0.

Refer to the diagram for a monopolistically competitive producer. The firm is

realizing a normal profit in the long run.

The price of product X is reduced from $120 to $100 and, as a result, the quantity demanded increases from 10 to 13 units. Therefore, demand for X in this price range

is elastic.

Suppose that total sales in an industry in a particular year are $200 million and sales by the top four sellers are $30 million, $20 million, $15 million, and $10 million, respectively. We can conclude that

this industry is monopolistically competitive.

Refer to the given table. This firm is

selling its product in a purely competitive market.

Refer to the graph, which shows the domestic demand and supply curves for a specific product in a hypothetical nation called Econland. If the world price for this product is $2.50, then Econland will

export 400 units.

The special-interest effect is one that yields

large economic gains to a small number of people and small economic losses to a large number of people.

A natural monopoly occurs when

long-run average costs decline continuously through the range of demand.

In pure competition, if the market price of the product is higher than the minimum average total cost of the firms, then

other firms will enter the industry and the industry supply will increase.

Refer to the table, in which the values for columns (2) through (5) are in acres. If the relevant columns are (1), (2), and (3), land rent will be

$0 per acre.

Suppose a person pays $80 of annual interest on a loan that has a 5 percent annual interest rate. The loan amount is

$1,600.

What is the long-run average cost of producing 10 units of output?

$10

Refer to the table, which gives data for a firm that is hiring labor in a purely competitive market. If the wage rate is $20, how many workers will the firm choose to employ?

2

The table shows the total costs for a purely competitive firm. If the product sells for $500 a unit, the firm's short run profit-maximizing (or loss-minimizing) output is

2

You are told that the four-firm concentration ratio in an industry is 80. Based on this information you can conclude that

the four largest firms account for 80 percent of industry sales.

Marginal resource cost is

the increase in total resource cost associated with the hire of one more unit of the resource.

Refer to the provided table. The surplus for Producer E is

$0

At what price does each shoe shine sell?

$4

The marginal revenue obtained from selling the third unit of output is

$3.

The marginal cost of the seventh unit of output is

$120.00.

The average total cost of 6 units of output is

$81.70.

Let us suppose Harry's, a local supplier of chili and pizza, has the revenue and cost structure shown here.

Harry's should shut down in the short run.

Charlie is willing to pay $16 for a T-shirt that is priced at $12. If Charlie buys the T-shirt, then his consumer surplus is

$4

The average fixed cost of producing 3 units of output is

$8.00.

The industry characterized by these data is

an oligopoly.

Price wars among oligopolists tend to

reduce profits for the firms.

The MR = MC rule

applies both to pure monopoly and pure competition.

In the market for a particular pair of shoes, Geri is willing to pay $50 for a pair, while Jane is willing to pay $45 for a pair. The actual price that each has to pay for a pair of these shoes is $40. What is the total amount of the two women's combined consumer surplus?

$15

Refer to the table representing Kara's bank account. If the $3,000 was deposited into her account at the beginning of year 1, the value for cell A is

$150.

Answer the question based on the payoff matrix for a duopoly, in which the numbers indicate the profit from following either an international strategy or a national strategy. If firm A chooses an international strategy and firm B chooses a national strategy, then the payoffs will be

$15M for firm A and $5M for firm B.

Refer to the diagram for a monopolistically competitive firm in short-run equilibrium. This firm's profit-maximizing price will be

$16.

Assume that in the short run a firm is producing 200 units of output, has average total costs of $250, and has average variable costs of $150. The firm's total fixed costs are.

$20,000.

On January 1, 2019, Alex deposited $4,000 into a savings account that pays interest of 6 percent, compounded annually. If he makes no further deposits or withdrawals, how much will Alex have in his account on December 31, 2021 (3 years later)?

$4,764.

Suppose that Joe sells pork in a purely competitive market. The market price of pork is $4 per pound. Joe's marginal revenue from selling the 21st pound of pork would be

$4.

On January 1, 2019, Alex deposited $5,000 into a savings account that pays interest of 5 percent, compounded annually. If he makes no further deposits or withdrawals, how much will Alex have in his account on December 31, 2021 (3 years later)?

$5,788

Assume that in the short run a firm is producing 200 units of output, has average total costs of $250, and has average variable costs of $150. The firm's total costs are. Multiple Choice

$50,000.

At a price of $4, the total revenues of sellers will be

$52.

If countries A and B produce only either rubber bands or paper clips, their maximum outputs are shown in the accompanying production possibilities schedules. In country A the opportunity cost of 1 paper clip is

.33 rubber bands

When the price of a product is increased 5 percent, the quantity demanded decreases 2 percent. The price-elasticity-of-demand coefficient for this product is

0.4.

Refer to the diagram and assume a single good. If the price of the good decreased from $6.30 to $5.70 along D2, the price elasticity of demand along this portion of the demand curve would be

0.8

The elasticity of supply of product X is unitary if the price of X rises by

4 percent and quantity supplied rises by 4 percent.

How many units of output are produced when 6 workers are employed?

42

Suppose that as the price of Y falls from $4.00 to $3.50, the quantity of Y demanded increases from 80 to 94. Then the absolute value of the price elasticity (using the midpoint formula) is approximately

1.21.

Blossom, Inc., sells 1,000 bottles of perfume a month when the price is $5. A huge increase in resource costs forces Blossom to raise the price to $6, and the firm only manages to sell 800 bottles of perfume. Using the midpoint formula, the price elasticity of demand coefficient is

1.22 and elastic.

Suppose that as the price of Y falls from $20 to $18, the quantity of Y demanded increases from 300 to 350. Then the absolute value of the price elasticity (using the midpoint formula) is approximately

1.46.

The price elasticity of demand for widgets is 1. Assuming no change in the demand curve for widgets, a 10 percent decrease in sales implies a(n)

10 percent increase in price.

Suppose that interest payments are $140 per year on a $1,000 loan and $1,188 per year on an $8,485 loan. The interest rates on the two loans are

14 percent and 14 percent, respectively.

The price of season tickets to a performing arts theater decreases by 4 percent. As a result, the quantity demanded increases by 10 percent. The price elasticity of demand for season tickets is

2.5.

A monopolist sells 8 units of a product per day at a unit price of $16. If it lowers the price to $15, its total revenue increases by $37. This implies that its sales quantity increases by

3 units per day.

Assume the price of a product sold by a purely competitive firm is $4.50. Given the data in the accompanying table, at what output level is total profit highest in the short run?

35.

The price elasticity of demand for widgets is 2. Assuming no change in the demand curve for widgets, an increase in sales of 12 percent implies a(n)

6 percent reduction in price.

Refer to the above graphs. The long-run equilibrium for a monopolistically competitive firm is represented by graph

B.

The accompanying table gives maximum-output alternatives for Brazil and Poland. If the two nations open up trade with each other, then

Brazil will export wine.

Refer to the diagram. If the supply of loanable funds is S0 and the demand for loanable funds is D1, the equilibrium interest rate and quantity of funds borrowed will be

E and B.

Suppose that the government chooses to do project C. What is the total cost and total benefit of doing project C?

Total cost is $8 billion, and total benefit is $12 billion.

Refer to the profits-payoff table for a duopoly. If initially firms X and Y are charging $6 and $4, respectively,

X would find it advantageous to lower its price regardless of whether Y alters its price.

The coefficient of price-elasticity of supply for a product is 0.8 if

a 5 percent decrease in price causes a 4 percent decrease in quantity supplied.

In the short run, a profit-maximizing monopolistically competitive firm sets it price

above marginal cost.

Assume that Abby, Ben, Clara, Joe, and Matt are the only citizens in a community. A proposed public good has a total cost of $1,000. All five citizens will share an equal portion of this cost in taxes. The benefit of the public good is $220 to Abby, $210 to Ben, $210 to Clara, $180 to Joe, and $120 to Matt. In a majority vote, this proposal will most likely be

accepted, 3 in favor, 2 against.

The marginal resource cost of labor for a firm refers to the

additional cost of each additional unit of labor employed.

Refer to the accompanying table for a certain product's market in Econland. If Econland was open to international trade and the world price was $10, then Econland would

export 800 units.

Diminishing marginal returns become evident with the addition of the

fourth worker.

The MR = MC rule applies

in both the short run and the long run.

The basic argument for income inequality is that

income inequality is essential to maintain incentives to produce.

Refer to the diagram. Suppose that the demand for loanable funds is D0 and the supply of loanable funds initially is S0. If the supply of loanable funds declines to S1, the equilibrium interest rate will

increase from F to G.

Refer to the diagram. The monopolistically competitive firm shown

is realizing an economic profit.

Answer the question using the accompanying cost ratios for two products, fish (F) and chicken (C), in countries Singsong and Harmony. Assume that production occurs under conditions of constant costs and that these are the only two nations in the world. Singsong: 1F = 2C Harmony: 1F = 4C In Singsong the domestic real cost of each chicken

is ½ fish.

In the theory of comparative advantage, a good should be produced in that nation where

its cost is least in terms of alternative goods that might otherwise be produced.

Suppose that the price of product X rises by 5 percent and the quantity supplied of X increases by 10 percent. The coefficient of price elasticity of supply for good X is

more than 1, and therefore supply is elastic.

If a nation has a comparative advantage in the production of X, this means the nation

must give up less of other goods than other nations in producing a unit of X.

Pure monopolists may obtain economic profits in the long run because

of barriers to entry.

In pure competition, if the market price of the product is lower than the minimum average total cost of the firms, then

other firms will exit the industry and the industry supply will decrease.

Suppose that Katie and Kelly each expect to receive $500 worth of marginal benefits from a proposed new recreation center, whereas Kerry expects to receive only $100 worth. If the proposed tax levied on each for the center would be $450, a majority vote will Multiple Choice

pass this project.

If discrimination based on gender and race was eliminated, we would expect the

personal distribution of income to become more equal.

A pure monopolist is selling nine units at a price of $50. If the marginal revenue of the tenth unit is $30, then the

price of the tenth unit is $48.

The accompanying table shows cost data for a firm that is selling in a purely competitive market. If the market price for the firm's product is $300, the firm will

produce 9 units.

Suppose that a business incurred implicit costs of $460,000 and explicit costs of $3 million in a specific year. If the firm sold 100,000 units of its output at $35 per unit, its accounting

profits were $500,000 and its economic profits were $40,000.

You are the only seller of eggs in town, and the price-elasticity coefficient for eggs is known to be 0.8. If you want to increase your sales quantity by 10 percent through a price change, what should you do to the price?

reduce price by 12.5 percent

In year 1 the price level is constant and the nominal rate of interest is 4 percent. But in year 2 the inflation rate is 2 percent. If the real rate of interest is to remain at the same level in year 2 as it was in year 1, then in year 2 the nominal interest rate must

rise by 2 percentage points.

The marginal revenue obtained from selling the second unit of output is

$6.

Harry owns a barbershop and charges $6 per haircut. By hiring one barber at $10 per hour, the shop can provide 24 haircuts per eight-hour day. By hiring a second barber at the same wage rate, the shop can now provide a total of 42 haircuts per day. The MRP of the second barber is

$108.

If the interest rate is 15 percent, what is the future value of $10,000 two years from now?

$13,225

The following is cost information for the Creamy Crisp Donut Company. Entrepreneur's potential earnings as a salaried worker = $60,000 Annual lease on building = $30,000 Annual revenue from operations = $250,000 Payments to workers = $100,000 Utilities (electricity, water, disposal) costs = $8,000 Value of entrepreneur's talent in the next best entrepreneurial activity = $80,000 Entrepreneur's forgone interest on personal funds used to finance the business = $6,000 Creamy Crisp's explicit costs are

$138,000.

For Plan B marginal costs and marginal benefits are

$14,000 and $20,000, respectively.

Assume that this monopolist faces zero production costs. The profit-maximizing monopolist will set a price of

$14.

Suppose that you could either prepare your own tax return in 8 hours or hire a tax specialist to prepare it for you in 2 hours. You value your time at $20.00 an hour; the tax specialist will charge you $45 an hour. The opportunity cost of preparing your own tax return is

$160.

The following is cost information for the Creamy Crisp Donut Company. Entrepreneur's potential earnings as a salaried worker = $55,000 Annual lease on building = $23,000 Annual revenue from operations = $320,000 Payments to workers = $130,000 Utilities (electricity, water, disposal) costs = $8,000 Value of entrepreneur's talent in the next best entrepreneurial activity = $80,000 Entrepreneur's forgone interest on personal funds used to finance the business = $6,000 Creamy Crisp's economic profit is

$18,000.

Suppose the market wage rate for whites is $22 an hour and the monetary value a prejudiced employer attaches to the disutility of hiring African Americans is $3. This employer will be indifferent between hiring African Americans and whites only when the African-American wage rate is

$19.

Assume that there are four consumers A, B, C, and D, and the prices that each of them is willing to pay for a glass of lemonade is, respectively, $2.50, $2.25, $2.00, and $1.75. If the actual price of lemonade is $1.50 per glass, then consumer surplus in this market will be

$2.50

Refer to the given data. At the profit-maximizing level of employment, this firm's total labor cost will be

$20.

The total revenue of a purely competitive firm from selling 10 units of output is $200. Based on this information, the unit price of the output must be

$20.

If the firm sells 3 units of output, marginal revenue will be

$35.

The table gives data for a purely competitive firm. The market price of the product in the short run is

$35.

The total revenue of a purely competitive firm from selling 50 units of output is $300. Based on this information, total revenue for 60 units of output must be

$360.

Refer to the provided table. What is the total producer surplus in the market for all producers A, B, C, D, and E?

$54

Based on the data, we can say that the marginal costs of Program C are

$6

Harvey quit his job at State University, where he earned $45,000 a year. He figures his entrepreneurial talent or forgone entrepreneurial income to be $5,000 a year. To start the business, he cashed in $100,000 in bonds that earned 10 percent interest annually to buy a software company, Extreme Gaming. In the first year, the firm sold 11,000 units of software at $75 for each unit. Of the $75 per unit, $55 goes for the costs of production, packaging, marketing, employee wages and benefits, and rent on a building. The implicit costs of Harvey's firm in the first year were

$60,000.

The marginal cost of the fourth unit of output is

$60.00.

If Kelly deposits $5,000 into an account that pays 12 percent interest, compounded annually, and she makes no further deposits or withdrawals, how much will Kelly have in her account at the end of 3 years?

$7,025

Assume labor is the only variable input and that an additional input of labor increases total output from 5 to 12 units. If the product sells for $10 per unit in a purely competitive market, the MRP of this additional worker is

$70.

The accompanying table shows cost data for a firm that is selling in a purely competitive market. If the product price is $230, the per-unit economic profit at the profit-maximizing output is

$74

Harvey quit his job at State University, where he earned $50,000 a year. He figures his entrepreneurial talent or forgone entrepreneurial income to be $7,000 a year. To start the business, he cashed in $80,000 in bonds that earned 10 percent interest annually to buy a software company, Extreme Gaming. In the first year, the firm sold 12,000 units of software at $70 for each unit. Of the $70 per unit, $52 goes for the costs of production, packaging, marketing, employee wages and benefits, and rent on a building. The total revenues of Harvey's firm in the first year were

$840,000.

The consumer price index is 125 in Year 1 and 132 in Year 2. The nominal wage rate is $15 in Year 1 and $17 in Year 2. What is the approximate percentage change in the real wage rate from Year 1 to Year 2?

7.7 percent

Suppose the price elasticity of supply for crude oil is 2.5. How much would price have to rise to increase production by 20 percent?

8 percent

The four-firm concentration ratio for the industry described in this table is

81 percent.

Suppose the price elasticity of demand for bread is 1.5. If the price of bread falls by 6 percent, the quantity demanded will increase by

9 percent and total expenditures on bread will rise.

Assume a purely competitive increasing-cost industry is initially in long-run equilibrium, producing 8 million units at a market price of $15.00. Suppose that an increase in consumer demand occurs. After all economic adjustments have been completed, which output and price combination is most likely to occur?

9 units at a price of $16.50.

In long-run equilibrium, a profit-maximizing firm in a monopolistically competitive industry will produce the quantity of output where

ATC = P, MR = MC < P.

Suppose the income elasticity of demand for toys is +1.2. This means that

a 5 percent increase in income will increase the purchase of toys by 6 percent.

Amanda buys a ruby for $240 for which she was willing to pay $340. The minimum acceptable price to the seller, Tony, was $190. Amanda experiences

a consumer surplus of $100, and Tony experiences a producer surplus of $50.

The poverty rate in the United States was

about 12 percent in 2017.

Under oligopoly, if one firm in an industry significantly increases advertising expenditures in order to capture a greater market share, it is most likely that other firms in that industry will

decide to increase advertising expenditures even if it means a reduction in profits.

If the price elasticity of demand for a product is 2, then a price cut from $4.00 to $3.00 will

increase the quantity demanded by about 50 percent.

If the demand for product X is inelastic, an 8 percent decrease in the price of X will

increase the quantity of X demanded by less than 8 percent.

If a purely competitive increasing-cost industry is realizing economic profits, we can expect industry supply to

increase, output to rise, price to fall, and profits to fall.

If the nominal wages of carpenters rose by 5 percent in 2019 and the price level increased by 3 percent, then the real wages of carpenters

increased by 2 percent.

Assume that your nominal wage was fixed at $20 an hour, and the price index fell from 106 to 103. In this case, your real wage has

increased to $19.42.

Refer to the diagram, which shows the domestic demand and supply curves for a specific standardized product in a particular nation. If the world price for this product is $0.50, this nation will experience a domestic

shortage of 160 units, which it will meet with 160 units of imports.

If a firm can sell 1,000 units of product A at $8 per unit and 1,200 at $6, then

the price elasticity of demand is approximately 0.64.

Suppose that Mick and Cher are the only two members of society and are willing to pay $10 and $8, respectively, for the third unit of a public good. Also, assume that the marginal cost of the third unit is $17. We can conclude that

the third unit should be produced.